Britain's recovery may not be sustainable because it is built on mounting household debt, a leading think tank has warned.

Growth is being driven by a housing bubble, fuelled by the House to Buy cheap mortgage scheme, which is encouraging families to borrow and spend more, economists fear.

The recession was worsened because of a “massive build up” of household debt before 2008, and that is due to rise again to 160 per cent of income by 2018. It means the rapid growth could prove “unsustainable and bittersweet,” according to the Institute for Public Policy Research.

Britain is now on course to grow at almost 2 per cent this year, the fastest rate since 2007. Unemployment is also falling more rapidly than expected and stands at 7.4 per cent.

But despite Mr Osborne’s hopes of rebalancing the economy towards manufacturing and exports, much of the growth has been driven by higher consumer spending. Britain’s current account deficit has deteriorated significantly in recent months to the highest level since 1989, as consumption continues to outstrip foreign exports.

“We should be alarmed that growth is being driven by exactly the same mix of factors that contributed to the depth of the last recession,” said Tony Dolphin, senior economist at IPPR.

"The Government has introduced Help to Buy which generates more debt, rather than focusing its efforts on boosting investment spending in the manufacturing sector.

"While there are external factors that have held back exports, the Government has in a sense run out of ideas for the economy and gone for the easy option of boosting the housing market."

“As a short-term measure to boost growth while it continues to cut public spending, it might be politically expedient for the government to adopt this approach. However, it is not a sustainable strategy for the British economy. George Osborne was right when he said that we can no longer rely on ever-higher levels of debt for growth.

"It is an indictment of the failure of his attempts to boost business investment spending that, rather than encouraging a rebalancing of the economy, he now has to resort to policies that will increase its imbalances.”

Mr Dolphin said the nature the recovery suggested there is a “fundamental flaw” in Britain’s economic model. The country has run a current account deficit for thirty years, suggesting it is “living beyond its means”.

The dominance of the City is leading firms to focus on boosting quarterly profits in order to avoid takeovers - at the expense of investment in industry, Mr Dolphin said.

“For the economy as a whole, this is disastrous. A low rate of investment means a less productive economy, lower living standards and a lack of competitiveness,” he said.

"Strong growth in the short-term does not mean that structural weaknesses in the UK economy that became more evident during the 'Great Recession' have been eliminated. Unless we move to adopt a new economic model, the recovery will prove unsustainable and bittersweet for those who do not benefit from it before it is extinguished."